- Market overview: Inflation is rising globally, and central banks worldwide are implementing tighter monetary policies to combat high inflation. In July, the Federal Reserve raised interest rates by 0.75% for the second consecutive month. Russia’s war in Ukraine continues to add to geopolitical uncertainty while China’s COVID lockdowns have slowed growth and exacerbated global supply chain woes.
- Syfe Core: Against this backdrop, Core portfolios performed strongly compared to their benchmarks in the first half of 2022. Core Equity100 was the best performing equity portfolio for 2022 amongst its peers.
- Syfe REIT+: Singapore REITs held steady relative to global equity indices and served as a hedge against inflation.
- Syfe Cash+: As the best performing cash management solution in Singapore, the portfolio has never had a week of negative returns in 2022. As interest rates continue to rise, the projected returns for Syfe Cash+ has been revised higher to 2.3% in September 2022.
In this performance update, Syfe’s Investment Research team takes clients through how our portfolios performed in the first half of 2022, and how they fared against their benchmarks.
The past few months have been characterised by persistent inflation, rising interest rates, and geopolitical uncertainty. In recent weeks, recession fears have intensified as the Fed signals more aggressive rate hikes on the horizon. Against this backdrop, a risk-off sentiment has taken hold, pulling global equities into negative territory during the first half of 2022.
Syfe Core portfolios held up against the broader market
Built for different investment goals and risk appetites, Syfe Core portfolios are designed to help investors grow long-term wealth. They provide global diversification across different sectors and asset classes (equities, bonds, gold), making them the ideal core allocation in a core-satellite investing strategy.
Notwithstanding the global market selloff, Syfe Core portfolios saw limited drawdowns and performed strongly compared to their benchmarks in the first half of 2022.
- Core Equity100 outperformed its benchmark MSCI World Index by 4%. Our strategic asset allocation framework ensured that the portfolio remained diversified against specific risks in the market and factor tilts to China and defensive sectors such as healthcare, utilities and consumer staples ensured that investors reaped the benefits of the recovery and outperformance of these exposures. Chinese stocks particularly rallied in June, buoyed by China lifting pandemic lockdowns in Shanghai and other major cities, and introducing a raft of pro-growth policies to boost the economy. Overall, Syfe’s Core Equity100 portfolio stood out as the best performing equity portfolio for 2022 amongst its peers.
- Core Growth held up well against the broader market, tracking its benchmark S&P Target Risk Growth Index. The portfolio also benefited from the factor tilts towards China and defensive sectors while the main detractor was exposure to longer dated US government bonds.
- Core Balanced slightly underperformed its benchmark S&P Target Risk Moderate Index. The portfolio contains a higher allocation to longer dated US government bonds as part of its all-weather strategy. When interest rates rise, bond prices tend to fall as yields go up. Bonds with longer maturities are more sensitive to rate hikes compared to shorter-term bonds. This weighed on the performance of the Core Balanced portfolio. Looking forward, we believe the longer maturity bonds should contribute positively as we reach terminal rates in bond yields and protect against any significant recessionary risks.
- Core Defensive outperformed its benchmark S&P Target Risk Conservative portfolio by almost 2%. The portfolio’s exposure to shorter duration bonds and Gold supported its performance.
Syfe REIT+ remained resilient
Syfe REIT+ holds 20 of Singapore’s largest REITs in one portfolio. Built for long-term income generation, it provides diversified exposure to all REIT sectors in Singapore: Office, retail, industrial, hospitality and healthcare.
Syfe REIT+ proved resilient in the first half of 2022. It performed better than global equities and offered investors a source of diversification amid a bear market for US stocks.
The portfolio returned -3% in the first half of 2022, outperforming its benchmark iEdge S-REIT Leaders Index, which returned -4%. It also outperformed the MSCI US REIT Index, which measures the performance of the US equity REIT market.
While global equity indices like the S&P 500 have slipped into bear market territory, Singapore REITs have performed relatively better, showcasing their value as an inflation hedge.
Additionally, REIT+ is projected to deliver a healthy 5.5% dividend yield in 2022, making it a more attractive option for income investors as compared to government bonds and term deposits, even in a rising interest rate environment.
Based on research from SGX, hospitality trusts, diversified REITs, and some industrial and retail REITs were among the top performing REITs in the first half of this year. These include Ascott Residence Trust, CapitaLand Integrated Commercial Trust, Suntec REIT, Frasers Centrepoint Trust, and Mapletree North Asia Commercial Trust, all of which are held within REIT+.
These factors underscore the diversification that REIT+ offers. The portfolio not only offers access to various real estate sub-sectors, but also acts as a balance against global equity markets, which have tumbled in recent months.
Investors can use REIT+ as a satellite portfolio to complement their US and global equities holdings and hedge against inflation.
Syfe Cash+: Stability amid volatility
Cash+ is Syfe’s cash management solution offering projected returns of 2.3% p.a. Unlike other solutions in the market, Syfe Cash+ has never had a week of negative returns in the 2022 year to date.
In the first five months of 2022, Cash+ generated annualised returns of 1.22%, exceeding its initial projected return of 1.2% p.a.
Given the rising interest rate environment, the projected returns were revised upwards to 1.5% p.a. in June, then to 1.9% p.a. in August, and 2.3% p.a. in September.
As interest rates continue to climb, Cash+ is on track to deliver its updated projected return for the year ahead.
We believe that an ideal cash management solution should offer stability, flexibility, and ease of use. In the last few months where bond and equity markets have been volatile, Cash+ has been a safe haven for investors – delivering stable returns over time. Looking ahead, we expect the projected yield for Syfe Cash+ to gradually move higher as interest rates continue to rise.
Keep a long-term perspective
Investing is a long-term endeavour. As markets stay volatile, exiting your investments may seem like a “safe” choice. However, data by J.P. Morgan Asset Management shows that missing just 10 of the stock market’s best days can cut your overall return by more than 50%. What’s more, seven of the best 10 days occurred within two weeks of the 10 worst days.
In other words, by pulling out of the market during a downturn, you not only realise your losses but also risk missing out on the recovery that follows.
While nobody can predict the market bottom, historical data shows that the longer you stay invested, the better your return prospects are. According to research done by Capital Group, the 10-year returns for the S&P 500 have been negative just 6% of the time since 1929. If you can hold your investments for a 20-year period, you would have historically come out ahead.
As Syfe’s CEO Dhruv Arora noted in an interview with The Straits Times, “If you have found a portfolio that works for your risk appetite, time horizon and investment goals, stick to it for the long-term as history shows that long-term investors will always prevail.”